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Back Door Method To Profiting From A Bank IPO




This post is one of those lesser known finance and quirky deals that my friend Personal Finance Digest is great at uncovering. I recently listened to this Planet Money episode starting at 9:25 mark:

The fine print sends a Midwestern family on a two-thousand-mile road trip to open dozens of bank accounts.

The Financial Quirk

That family understood how the American banking system works and profited from understanding the mutual savings bank. They understood that when a bank is formed as a mutual savings bank depositors are the owners of the bank. In a sense, the mutual savings bank is similar to a credit union where the depositors are part owner, but a bank is a for profit organization. When the bank files for an IPO the depositors have first dibs on the initial public offering and can invest in the bank.

making_it_rain

Making It Rain

According to Marketplace Lists all you need is $100 and an account that has been opened for a year and you would be eligible for the IPO.

Thankfully, the FDIC has a nice, downloadable list for you to research and open new accounts if you wanted to participate. Additionally, the FDIC also tells you how many assets they manage which can be used as a gauge to guess which bank would be next to file for their IPO.

Happy hunting opening new accounts. Like this that DoC posted about Columbia Bank just might be a little sweeter. Maybe a little retail arbitrage and driving around to open bank accounts can be part of a tax deductible road trip.

Wrapping Up

The family that were interviewed are very much like travel hackers. They knew how the system works and made sure they are able to take advantage of the terms and conditions very much how we know how to manufacture spend. In the interview, the family had mentioned there were a couple of IPO’s that they lost money, but it sounded like they did pretty well. 

6 comments… add one
  • What does this mean? “how many assets they manage which can be used as a gauge to guess which bank would be next to file for their IPO.”

    Is there some threshold to reach before the bank might consider an IPO?

    Reply
    • I should have been clearer. It is only a hypothesis on my side that the more assets they manage, like Columbia Bank managing $4.8 billion is a lot of money. Because of that large size, it is my guess that they would IPO before Huntingdon Savings Bank of PA who have 16 million on the books

      Reply
      • OK. I figured the larger the assets the more likely this happens. I thought maybe you also knew around what amount has been the minimum before banks did an IPO in the past. For example, I see banks on the list near me at around $1.2B and $1.4B. (A couple near the top are not too far away but would require a little more effort.) Thanks for posting this.

        Reply
  • Interesting, thanks for sharing this.

    Reply
    • You’re welcome! I hope you are able to find more details about it. Would love to read your thoughts

      Reply
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